Budget Report Definition
Budget Report generally refers to the projected reports that shows future planning of an organization about how to meet out their expenses, how to achieve its income target to sustain in the market, how to invest in the market for their growth, how to acquire assets.
Example of Budget Report
- The budget report is helpful in identifying the estimation of future growth of sale, which is required to sustain in the market. It also identified how the company would achieve the sales target by acquiring new customers, new business units, new segments.
For example, suppose an organization makes a goal that $ 200000 sales will achieve in the upcoming next month, which can be done by reducing their sale price per unit, acquiring new customers by giving them a discount. - The budget report is used to identify the estimation of how many units of production required to fulfill the demand for sale. It also estimates how much will be the labor costLabor CostCost of labor is the remuneration paid in the form of wages and salaries to the employees. The allowances are sub-divided broadly into two categories- direct labor involved in the manufacturing process and indirect labor pertaining to all other processes.read more, materials cost needed to make a business profitable.
For example, suppose there is a demand for 1000 units and the selling price per unit $ 20. To achieve this target organization has to estimate 1000 units of production, and it has to estimate how much labor cost, raw materials cost needed to make the production cost per unit lower than $ 20 to maintain a profit. - These reports provide estimation for advertisement, promotion, research, and development needed to increase their sales revenueSales RevenueSales revenue refers to the income generated by any business entity by selling its goods or providing its services during the normal course of its operations. It is reported annually, quarterly or monthly as the case may be in the business entity's income statement/profit & loss account.read more.
For example, today ‘s world is so competitive, and there are numerous products and services which are available in the market. Advertising and promotion are important ways to bring the attention of a customer. - This report is needed to estimate the upcoming expense and income. It generally covers the short term period. It helps to identify how income is sufficient to meet the expenses. It also identifies the need for outside financing when it is required.
- It provides information about how an organization will invest in new machinery, new product, replacement of old machines, whether the same is fruitful for the organization.
- All the expenses under the budget need approval, and nothing will carry forward from the previous year’s budget. It is very useful when there are limited resources available in the organization.
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Advantages of the Budget Report
- This report is important to safeguard the organization from future threats. Suppose next year the expenses of the organization are going to increase, one will make sufficient provision to safeguard.
- It is helpful to identify the growth of the organization.
- It identifies the viability of a future project.
- It helps to identify the weaknesses of a project.
- It provides information regarding the liquidity positionLiquidity PositionLiquidity shows the ease of converting the assets or the securities of the company into the cash. Liquidity is the ability of the firm to pay off the current liabilities with the current assets it possesses.read more of an organization through the cash budgetCash BudgetCash budget refers to cash inflows and outflows estimations made by a company's management over a given period to evaluate whether the business has adequate cash & cash equivalents to meet its operational needs in the coming future.read more.
- It provides necessary information regarding the going concern assumption of an organization.
For example, there is litigation going on, and if the organization loses the case, it requires a huge amount to pay, they might have to sell some assets to pay the same, which can question ongoing concern assumption.
- It is very important for the management of the decision-making process.
- It provides information regarding the debtorThe DebtorA debtor is a borrower who is liable to pay a certain sum to a credit supplier such as a bank, credit card company or goods supplier. The borrower could be an individual like a home loan seeker or a corporate body borrowing funds for business expansion. read more position and future recovery.
- It is an important tool to identify the credibility of an organization to meet out their dues.
- It provides useful information for investment purposes.
- Proper training and skill are required to prepare the budget report.
Disadvantages of the Budget Report
- It generally considered an only future expense, income, investment, asset.
- It doesn’t provide information relating to the current situation.
- Preparation of budget is time-consuming and required an expert to prepare the same, and that involves cost also.
- Sometimes budget reports might manipulate or hide some information that can be useful for the decision making the process.
- Anyone can blame others if the budgeted report not achieve.
- Sometimes it is misused by the department.
For example, suppose an organization fixed an expense budget for a particular department, say $ 10000. They will use all the amount unnecessary by knowing that there is a fund available.
Limitations
- It is totally based on the assumption, and it can not provide realistic information.
- The budget report prepared in the current year might change in next due to rapid change in the market.
- It sometimes involves manipulation to keep senior management happy.
- It is focused only on financial matters of the future; it does not provide other information such as consumer behavior, market conditions, quality of a product.
- It does not provide any information for an existing situation.
Important Points
Budget Report is prepared based on assumptions, and there will be a high chance for variations in the report. To overcome this, a report should be prepared based on a realistic approach. In case of any changes in the report should be brought to the notice of management.
Conclusion
This report is highly important for every organization to achieve its long term goal. Proper training and skill must be given to employees for Budget report preparation. Most of the decisions of an organization are taken based on the Budgeted report.
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